What the Change to Definition of Governmental Plan Can Mean

December 20, 2011 (PLANSPONSOR.com) – In November, the Internal Revenue Service issued a request for comments on possible governmental plan guidance.

Comments on the proposed rulemaking are due by February 6, according to Bob Architect, vice president, Compliance and Market Strategy, VALIC, speaking to webcast attendees. As an example, Architect said a higher education institution that offers degrees in medicine may have a hospital attached to it. Is the hospital plan a governmental plan?  

Richard Turner, vice president and deputy general counsel, VALIC, said the governmental plan guidance from the IRS will carve out of Title I of the Employee Retirement Income Security Act (ERISA) those plans that are governmental plans, which will be of importance to the Department of Labor (DoL), which governs ERISA plans. The guidance will also be of interest to the Pension Benefit Guaranty Corporation (PBGC) that insures private-industry pension plans. The notice of proposed rulemaking says the IRS is seeking to coordinate with the DoL and PBGC.  

The guidance could change a plan’s status to or from a governmental plan, according to Turner. This is very important to whether plans have an ERISA coverage exclusion. The guidance will also address entities that are spun off from the government and acquired by a private entity. In those cases, Turner says, the guidance may allow sponsors to freeze the plan that was governmental and have it remain a non-ERISA plan.  

Architect’s guess, though, is that it will take several more years for the final rule to come out.  

More information about the IRS’ request for comments is at http://www.irs.gov/retirement/article/0,,id=249178,00.html.